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Business Observer Thursday, Oct. 14, 2021 11 months ago

Federal tax plan might extinguish Biden’s promise

Tobacco taxes tend to have an outsized impact on lower-income citizens.
by: Adrian Moore Contributor

President Biden promised not to raise taxes on those making less than $400,000 a year no fewer than 60 times on the campaign trail. “That's a guarantee. A promise. I give you my word as a Biden," he told CBS's Norah O'Donnell in 2020. He also pledged not to raise taxes on small businesses.

To pay for a mammoth $3.5 trillion spending bill, Biden risks breaking his promise. One of the proposals to fund the package is a massive increase in tobacco taxes. Cigarette taxes would double, and less dangerous nicotine alternatives like e-cigarettes and FDA-approved products like heated tobacco and the smokeless tobacco snus would be taxed at the same rate as cigarettes.

Adrian Moore.

Such a significant increase in tobacco taxes would clearly violate Biden's pledge. Smokers are disproportionately low-income, with almost 100% of tobacco taxes paid by those making below $400,000. A Florida smoker earning just $15,000 would see a tax hike of nearly $400 and would be paying 11% of their total income or $1664 in cigarette taxes.

Aligning e-cigarette taxes with regular cigarettes could also prove disastrous for public health. Writing for Morning Consult, three health economists argued, "An appropriate tax structure is to tax tobacco products according to risk; therefore, taxing e-cigarettes and snus substantially lower than combustible tobacco." In addition, a study published in the National Bureau of Economic Research concludes that taxing e-cigarettes could lead to millions of fewer Americans quitting smoking.

But it's not just smokers and vapers set to suffer, with the tax on premium cigars set to be raised by 1,000%. Even those who might support higher cigarette taxes despite their regressive nature should balk at the attack on cigars. Premium cigars do not appeal to kids and are typically out of their price range. Data from the Population Assessment of Tobacco and Health shows premium cigar smokers enjoy their product of choice relatively infrequently and start later than other tobacco users at age 24.

Florida's cigar industry has a long and storied history stretching almost 200 years. The state was once the cigar-making capital of America, and Tampa was largely built on the success of the cigar industry. U.S. Sen. Marco Rubio, R-Miami, called the premium cigar industry "an iconic staple in Florida's economy."

The state enjoys a host of cigar lounges and shops, a desirable feature to the Sunshine State's many tourists. Ybor City is still home to a wide variety of boutique cigar makers. However, it's these small businesses that will suffer most thanks to a crippling tax burden. Analysis by Chmura Economics & Analytics shows Florida businesses would suffer a direct impact on revenue to the tune of $103 million, and $218 million in indirect revenue hits with the loss of 1,689 jobs. Moreover, tobacco taxes are no longer the rich source of revenue they once were and becoming increasingly unstable. Even if the heroic assumptions made about how much the tobacco tax would raise are realized, it will pay but a fraction of Biden's spending bill. But most of the money raised would come overwhelmingly from the people Biden promised not to tax.

Guy Bentley.
Guy Bentley.

It was just two years ago the federal age for tobacco purchase was raised to 21. Smoking rates among youth are at the lowest point in history at 4.6%, and there's no reason to believe they won't continue to decline. Youth vaping also fell by almost 30% in 2020 before schools were closed.

Protecting Florida's cigar industry shouldn't be a partisan issue. U.S. Rep. Bill Posey, R-Rockledge, and U.S. Rep Kathy Castor, D-Tampa, introduced legislation earlier this year to ensure cigar businesses aren't unfairly impacted by damaging regulations from the Food and Drug Administration. More than half of all businesses that sell tobacco are single-owner operations. The Tobacco Tax Equity Act, sponsored by other federal lawmakers, including U.S. Sen. Dick Durbin, D-Illinois, would only hammer these small businesses and concentrate the market among larger companies.

Guy Bentley is Director of Consumer Freedom and Adrian Moore is Vice President of Reason Foundation.







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